10.4.2 Paragraph 2.2 (first and second indent) – The master franchisee may not have operated a business concept with success for a reasonable time or “at least” one pilot unit before starting to sub franchise. Increasingly franchisors are requiring their master franchisee to do precisely that in order to enable the master franchisee to obtain hands on commercial experience which a master franchisee would not have by simply acquiring master franchise rights. A major issue for franchisors using the master franchise concept is that their master franchisee may know little or nothing about franchising and, indeed, may know little about the particular industry which it is required to franchise. This is clearly not advisable but the extent to which the Code specifically requires a master franchisee (and not simply the franchisor) to have operated a pilot operation as required by the first two indents of paragraph 2.2 of the Code is unclear.
10.4.3 Paragraph 2.2 (third indent) - The master franchisee will not be the owner of the trade name, trade mark or other distinguishing identification, but will have contractual rights in respect of their use and, importantly in a master franchise relationship, to sub licence those rights to sub franchisees. The master franchise agreement will set those rights out. Occasionally franchisors grant rights directly to sub franchisees but this, in practice, is unusual. Sub franchisees are entitled to verify the legal rights granted to the master franchisee in relation to the use of trade marks, trade names, etc.
10.4.4 Paragraph 2.2 (fourth indent) - Master franchisees do, often, provide training to sub franchisees although, in some cases, training is required by the franchisor to be provided at the franchisor’s head quarters at least in the early days until the master franchisee has established its own training capabilities and facilities. The obligation on sub franchisees to be trained in the franchisor’s home country is becoming less common.
10.4.5 Paragraph 4 - Master franchisees are required to select and accept as individual franchisees only those that have certain attributes. You would expect the master franchise agreement to set out similar provisions and perhaps to set out what those attributes might be.
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